March 9/Toronto/BMI Americas Food and Drink Insights -- Canadian private label soft drink specialist Cott has posted rising sales for its latest financial year. In the 12 months to December Cott registered a 7% increase in recoded volumes, with the results boosted by the acquisition of juice maker Cliffstar in August 2010. On an organic basis (excluding the impact of Cliffstar) volumes were up by 1%. Revenues were up by 13% to $1.8 billion but declined on an organic basis by 1%. During the fourth quarter Cott's sales growth accelerated, with volumes up by 20% (4% excluding Cliffstar) and revenues up by 37% (3% excluding Cliffstar). The results continue to point to a recovery for the business, which had been hampered by mismanagement and the trend away from carbonated soft drinks, and this recovery is reflected in the firm's share price, which has increased ten-fold over the last two years.
Cott's core markets are Canada, the U.S., the U.K. and Mexico, and in these regions it produces private label soft drinks for a wide variety of retailers including Wal-Mart Stores. Up until 2004, this strategy had delivered steady if unspectacular growth, but from 2005-2008, Cott's earnings started moving in the wrong direction. Cott was damaged by the trend away from carbonated soft drinks in developed markets and was also affected by an expensive foray away from its core private label stronghold. Cott has always dabbled with branded offerings but the attributes of a successful private label producer are generally not the same as a successful brand builder. The additional marketing and product development expenses go a long way to explaining the downturn in the company's profitability.
The reasons for the company's demise meant that BMI was always of the belief that the firm had the potential to orchestrate a turnaround. In April 2008, the group wrote that the company's problems were not insurmountable and that a focus on its core private label portfolio would allow it to return to growth. In addition, the group suggested "many of the drinks that consumers are now favouring, such as ready-to-drink tea, energy drinks and bottled water, actually sell for higher prices and offer higher margins than traditional carbonated soft drinks. This makes them particularly well suited for private label producers, who should be able to dramatically undercut firms selling branded products, and a focus on developing private label alternatives to the market leading non-carbonated soft drinks should eventually allow Cott to return to growth."
Five years of declining earnings and cuts to a key account with Wal-Mart convinced Cott that this strategy was not working, and in 2008, it refocused on doing what it does best -- producing private label soft drinks at prices that undercut its branded rivals. The firm has also increased its focus on non-carbonated products and this strategy was cemented by the acquisition of private label juice manufacturer Cliffstar for $500 million.
From the March 10, 2011, Prepared Foods' Daily News
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